Diary of a Financier

Top Newsstuffs (July 28 – August 3)

In Bookshelf, Economics on Sun 3 Aug 2014 at 06:21

Lost in the dunes of our National Seashore…

Macro

Purchasing Managers Index (July 2014) | Markit Economics
Global manufacturing activity remains strong despite headline risks; led higher by US: “The average PMI (54.4 US ytd) corresponds to a 3.7% increase in real GDP on an annualized basis… and 4.6% in July alone.”
Global Manufacturing PMI: -0.1 @ 52.5, remains strong
Australia: +1.7 @ 50.7, first expansion since YE13 crash
Japan: -1.0 @ 50.5
China: official +0.7 @ 51.7, edged higher again; unofficial +1.0 @ 51.7, continues recovery from March collapse
Rest of Asia: screaming higher
    South Korea: +0.9 @ 49.3
    Taiwan: +1.8 @ 55.8, a leading accelerator in expansion
    India: +1.5 @ 53.0
Eurozone: unch @ 51.8, expanding but velocity holds steady at 8-month low
    Germany: +0.4 @ 52.4
    Netherlands: +1.2 @ 53.5
    Italy: -0.7 @ 51.9, an 8-month low
    France: -0.4 @ 47.8
    Spain: -0.7 @ 53.9
UK: -1.8 @ 55.4, decelerates after leading-the-pack for 17 months
Brazil: +0.4 @ 49.1, “lower production linked to World Cup soccer”
US PMIs:
    Manufacturing: -1.5 @ 55.8, just off 50-month high
    Services (ISM): +2.7 @ 58.7 vs 56.5e, highest reading ever (since 2008 inception)
US ISM: +1.8 @ 57.1 vs 56.0e, meaningfully accelerates to 38-month high & beats expectations; verifies the healthy flow-through of orders to shipments displayed by durable goods, including a reduction in excess inventories I’ve hoped for
    New orders: +4.5 @ 63.4
    Production: +1.2 @ 61.2
    Inventories: -4.5 @ 48.5
    Deliveries: +2.2 @ 54.1
    Exports: -1.5 @ 53.0
    Employment: +5.4 @ 58.2
#Bullish

Gross Domestic Product: Advanced estimate (2014q2) & revisions (2014q1 & 2011-13) | Bureau of Economic Analysis (BEA)
Huge Q2 beat crushes the skeptics, Q1 revised up, 2011-13 revised down; inventories were a major contributor:
Real GDP: Q2 +4.0% vs +2.9e; 1H +1.9% (+0.7 ex-inventories)
    Inflation: +1.9% headline; +1.7% core
Consumption (PCE): +2.5
    Government spending: +0.8 federal; +3.1 state & local
    Fixed investment: +5.5
    Residential investment: +7.5
    Equipment investment: +7.0
    Private inventories: +1.66pp (after -1.16pp Q1)
    Exports: +9.5 (vs -9.2 Q1)
    Imports: +11.7
    Personal savings rate: +5.3
Real GDP (Q1): revised from -2.9% to -2.1%
Real GDP (2011-13): revised from +2.2% to +2.0%
[Previously: The bond market is wrongQ1 GDP in context, “I don’t like the suggestion that the weak Q1 was synecdoche for a broader trend in the economy.”]
#Bullish!

Rail traffic weekly | Association of American Railroads (AAR)
Unheralded rally continues; coal is 38% of total volume, so it’s weighing on traffic growth, which was +10.9% on equal-weighted basis; I’d expect moderation in trend growth this quarter after pent-up demand surge in Q2:
Weekly traffic: +3.8% yoy
Growth ytd: unch @ +4.7%
Carload groups: 9 of 10 posted gains; motor vehicles/parts +20.3%, petroleum +19.2, metals +17.2, grains +16.1; coal -5.7
#Bullish $DBA $XLE $USO $XME

Sentiment

NYSE margin debt & balances (June 2014) | Doug Short (dshort.com)
Increases resume and balances are back near alltime highs; given small cap “internal correction” that resumed in July, next month’s report will hopefully show retrenchment; SPX didn’t crash until 3-5 months after real margin debt peaked in 2000 & 07, at which time margin levels had already receded:
Nominal margin debt: +5.7% @ $464.3B; spikes after waning from March to May; only 0.3% below February’s alltime high @ $465.7B
Real margin debt: rose to threshhold of February’s alltime high but still in excess of 3/2000 & 7/2007′s highs
Net margin balances: -$175.8B debit; back near February’s alltime low deficit @ -$177.5B and still crushing prior records from 2000, 2007 & 2011
#Bearish #Latent indicator

Quant/Fundamental

Quant study: Global asset class performance during rising interest rate cycles (1993-2013) | Blackrock
Stock & bond performance has been surprisingly good during periods of policy tightening:
Sample size: 6 (1993-94, 1995-97, 1998-2000, 2009-10, 2012-13)
Global dividend growers ($IDV): +26.5% average annual return, 14.0% volatility
Global equity ($ACWI): +26.5% return, 14.0% vol
US bonds ($AGG): +1.2% return, 3.6% volatility
[Previously: Equities positively correlated with rising rates]
$IRX $FVX $TNX $TYX

US automotive sector: Cyclical & secular appraisals | Morgan Stanley
“The US auto cycle has clearly moved from a ‘need to buy,’ to an ‘I just want to buy’ type of consumer mindset…
“The 2 most unsettling (and underreported) trends in the US cycle include extended loan maturities and inflated residual values. The resulting low monthly payments create the image of affordability, enabling the purchase of bigger, higher priced cars. The monthly data shows rising ATPs, suggesting improved pricing, when precisely the opposite is occurring…
“The race for autonomous cars creates some of the most exciting supplier investment opportunities and pair trades in a generation.”
Best secular ideas: $BWA $TRW $DLPH* (*MS top pick)
Best cyclical ideas: $LEA $MGA*
Manufacturer: $TSLA*
[Previously: Automotive equity basket & Renewed subprime bubble in used car loans]
#Contrarian #Outlier

Interests

Currency trading fading | The Wall Street Journal (WSJ)
“Steady interest rates & low volatility discourage investors from making bets” — the product of “global, coordinated, central bank policy response”:
Total transaction volume: -8% yoy @ $4.1T in April (monthly)
North American transaction volume: -20% @ $811.1B ”
[See also: Today’s currency wars vs 1935’s beggar-thy-neighbor]
$CVIX $FXCM

Stabilizing Urban Neighborhoods (SUN): Aiding foreclosed homeowners | WonkBlog (The Washington Post)
A Boston-based NPO could be the national model for fighting blight with housing buy-back programs:
“Boston Community Capital buys homes in Massachusetts, Maryland & Rhode Island that are in foreclosure or close to it, and then resells or rents them to the former owners at a price that reflects the property’s current market value”… thereafter, BCC is entitled to 50% of net gains after a subsequent sale of the home.
Qualifications: Borrowers late on mortgage payments due to hardship or foreclosure process; need steady income
Impact: 500 families allowed to remain in their homes since 2010
Redefault rate: < 5% (less-than national average)
[Previously: Eminent domain could fight the real estate hangover]
#Non-profit organization #Socially responsible investing

–Romeo

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  1. […] +11.0 (-0.7pp) – Real GDP per capita: +3.49% (9.2% below regression trend) [Previously: Advanced estimate, The bond market is wrong & Q1 GDP in context, "I don’t like the suggestion that the weak […]

  2. […] loan (+0.2pp @ 11.3%) impairments worsened [Previously: Senior loan officer survey bullish & Renewed subprime bubble in car loans] #Bullish #Releveraging #Private […]

  3. […] that their lending policies would stay about unchanged over the next year” [Previously: Renewed subprime bubble in auto loans] #Bullish #Credit expansion #Credit cycle $BKLN […]

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